European Union points to irregularities in Madeira

 In Companies, Development, News, Tax

Madeira is at the centre of an EU storm over a tax incentive package, with the European Commission claiming that thousands of companies had unduly benefited from tax reductions on activities that brought little or no economic benefit for the island’s development.

The European Commission concluded on Friday that the Madeira Free Zone scheme operating on the island was not implemented in line with approved conditions.
In other words the Regime III aid scheme in Portugal for Madeira was not in line with the Commission’s State aid decisions of 2007 and 2013.
The EU measure was designed to contribute to the economic development through tax incentives and the Commission decisions made the granting of tax reductions conditional on only benefitting companies that “create jobs in Madeira” and on applying the tax reductions to “activities effectively and materially performed in Madeira”.
However, a Commission investigation has shown that the tax reductions were applied to companies that have made “no real contribution” to the development of the region, including on jobs created outside Madeira (and even the EU), in breach of the conditions of the decisions and EU State aid rules. Portugal must now recover the incompatible aid, plus interest, from companies that did not meet those conditions.
Executive Vice-President Margrethe Vestager, in charge of EU competition policy, said: “Outermost regions, such as Madeira, face specific challenges and therefore benefit from particularly flexible State aid rules to support their economic development. On this basis the Commission had approved support for the Madeira Free Zone, enabling tax advantages to be granted to those companies that contribute to the creation of real economic activity and jobs in the region. However, the scheme was not implemented in line with these fundamental compatibility conditions. This is in breach of EU State aid rules and therefore Portugal will now have to recover aid from relevant companies that did not create real economic activity and jobs in Madeira.”
However, Pedro Calado, vice-president of the Regional Government of Madeira, dismissed the decision by the EC as a “non-story”.
“I reckon that this news that was released by the European Union on Friday is a non-story,” he told journalists.
The investigation was launched in 2018 and discovered that the “implementation of the Regime III in the Madeira Free Zone was “not in line with the European Commission’s decisions for aid,”
adding: “tax reductions were applied to companies that did not represent any value added to the development of the region.”
Which is why the Madeira vice-president says that this decision “was a revival of a process that has been in train since 2017, 2018 and 2019,” recalling, “in 2019 a lot of information was requested from all companies that are operating in the Madeira Centre for International Business (CINM).”
Pedro Calado adds that the “issue on table is open to interpretation, on knowing if jobs should be considered ‘solely’ in Madeira, or if the companies based in the region may create jobs all over the world.”
He argues that the CINM was created “to attract international companies, to exercise activities in Madeira and there are many companies (based in one place) but that are spread all over the world.”
“The workers who are spread world-wide have their tax deductions here (in Madeira) and the companies too,” he said.
Pedro Calado said that “all of this was explained to the European Commission and during a supervisory checking period.
“Now we think that it is a huge coincidence that this news was released on Friday, precisely on the eve of a visit by a woman who did more harm than anyone else to the CINM, who tells bare-faced lies about the CINM,” he said, alluding to the visit of the presidential candidate Ana Gomes over the weekend to the island and who has long been a stalwart campaigner against offshores, tax havens, corruption and Golden Visa type regimes.
Pedro Calado argues that Ana Gomes should “at the very least” visit the CINM and “hear the plus side or ‘advantages’” which represent 2,300 companies, 6,000 jobs and €100,000 in tax revenues.
He also said that the whole situation was proof that the CINM is “among the most supervised and regulated entities known from all the financial markets.”
“Moreover, for those who claim that Madeira is a tax haven, here is proof that it is not. It is a centre that is audited and supervised by the European Union, by the tax authorities on Mainland Portugal which supervises companies that are conveniently audited and regulated,” he concluded.